Rising house prices and increases in other assets have seen HMRC launch more investigations to ensure individuals are paying the correct amount of inheritance tax (IHT), with the number of tax probes up by 5% this year.

If an investigation finds that IHT has been underpaid, the estate may have to pay all of the tax owed plus a penalty, which could be up to 100% of the tax at stake in the estate. The three areas that HMRC are likely to look into when they investigate an IHT return include whether the figures submitted accurately reflect market value – particularly in respect of residential property; whether any claims for business or agricultural reliefs are valid; and whether any assets have been omitted deliberately or due to lack of reasonable care.

It is likely that the area most likely to be queried by HMRC is the valuations of residential property that is passed onto heirs. In some cases, HMRC might argue that additional value should be attributed to properties that have potential for refurbishment, or development of any attached land.

As with all of our tax tips and web pages this information is necessarily summarised and of a general nature.  If you would like detailed specific advice please contact us.